Patterns of Regional Income Distribution in Uruguay (1872–2012): A Story of Agglomeration, Natural Resources and Public Policies

In this chapter, we provide a new data set of regional GDP and GDP per capita for Uruguay between 1870 and 2012. As regards the long-term evolution of regional inequality, we find evidence of a persistent decline from the last third of the nineteenth century up to the 1960s with a strong reversal of the process from then on. The first decade of the twenty-first century, however, shows a new decreasing trend in regional inequality. Montevideo has represented a large share, both demographically and economically, over time as consequence of a privileged access to sea and the fact that the city was built around a natural port with excellent conditions. In addition, agglomeration forces identified with a large market of skilled labour favoured the initial high levels of concentration of production. However, inequality decreased, so other factors compensated these centripetal forces until the 1920s. In particular, the integration of the domestic market with the construction of the railways reduced trade costs and facilitated regional convergence during the First Globalization and the interwar years. After World War I, the motor transport and infrastructure investments reinforced these previous effects. Since the 1930s, a high degree of state intervention in the economy during the so-called import substitution policy period meant relevant equalizer forces: altering relative prices/yields, taking advantage of strategic natural resources, and promoting public enterprises and extensive presence of Public Administration in the territory. Inequality increased in the 1960s–1990s in a context of a new growth model based on low state intervention, with a greater emphasis on the development of financial and services sectors, and the deepening of the international regional trade (PEC, CAUCE, Mercosur). These conditions favoured the economic growth of the most diversified regional economies and more exposed to the Argentine effects (Montevideo, Colonia, Maldonado). After the 2001–2002 crisis, the pattern of regional development changed again and inequality decreased encouraged by a favorable international context in the commodity markets well exploited with a new wave of public–private institutions and policies to promote agro-export value chains, and others policy actions that positively affected, transversally, different sectors. In particular, the institutional framework to promote competitiveness and exports was reinforced (specifically in meat and milk, and in general in innovation and logistics to support agro-export chains) and the government passed two laws referred to regional development and decentralization.